On 14 September 2017, the IRS issued Revenue Procedure 2017-53, setting out the requirements for ‘preferred written advice’ upon which a US domestic private foundation can rely when making grants to non-US charities. This revenue procedure modifies and supersedes Revenue Procedure 92-94.
To avoid the application of certain excise taxes, a US private foundation must distribute annually a certain amount of its income and exercise ‘expenditure responsibility’ (essentially, a grant inquiry and oversight process) over any grants not made to ‘public charities’ under the US definition. A US private foundation that makes a grant to a non-US charity must exercise expenditure responsibility unless it makes good faith determinations that the grantee (i) would meet the US test to be a ‘charitable organization’, and (ii) is a ‘qualifying public charity’. Frequently, US private foundation managers rely on written advice from a qualified tax practitioner to assist them in making these good faith determinations (also called ‘equivalency determinations’). This written advice must contain sufficient facts and analysis to enable the IRS to conclude that the grantee would be a ‘qualifying public charity’.
Revenue Procedure 2017-53 provides significantly expanded and more detailed guidance regarding the requirements for this written advice (called ‘preferred written advice’). If these requirements are met, the written advice ‘ordinarily’ will be treated as containing sufficient facts and analysis for this purpose. The requirements in the Revenue Procedure are detailed and specific, and include:
- attaching the governing documents of the grantee;
- specific confirmation that the US tests for ‘charitable organization’ qualification are met;
- significant financial information in some cases; and
- confirmation the grantee is not a terrorist organization.
The Revenue Procedure also contains specific rules regarding the date of the written advice, the date of the information on which the written advice is based, and the length of time during which the US private foundation can rely on the written advice for purposes of making its equivalency determinations. Practitioners representing US private foundations or non-US grantees should review any written advice on which current equivalency determinations are based to ensure it is up to date and meets the ‘preferred written advice’ requirements under new Revenue Procedure 2017-53.